Entertainment, gifts & bonuses - Our annual reminder!

The season for giving and entertaining is nearly here, so now is an appropriate time to refresh your understanding of the entertainment, gift and bonus deductibility rules. There have been no changes with these rules.

Entertainment – Business related entertainment expenses are claimable however that claim could be 100% deductible or limited to 50%, depending on the nature of that expense.

The 50% deductibility rule will apply if the main purpose is for entertainment and not business promotion. A deduction will be limited to 50% if entertainment is provided that includes a private element such as: providing entertainment away from the workplace or out of usual work hours including corporate boxes or similar, holiday accommodation, recreational boats, also food and drink at work for social events, food and drink offsite, and gifts of food and drink. Where a deduction is limited to 50%, GST is only claimable on 50%.    

Entertainment also could be subject to the FBT rules if the benefit is enjoyed by employees in their own time, at their own leisure and at a place they choose to enjoy it, for example gift vouchers.

Copies of invoices/receipts must be kept to support these deductions.

Gift Vouchers – Vouchers are 100% deductible, however, will be subject to the FBT rules for Companies or private limitation for all other entities as the recipient is able to spend and enjoy the voucher as they like - in their own time, at their own leisure and at a place they choose to enjoy it. This may also be applicable for membership and subscriptions paid on behalf of employee’s. There is no GST claim allowed when purchasing vouchers as there is not a supply of a good or service. The redemption of a voucher will, however, trigger GST matters.

Bonuses – Bonus payments made to employees are deductible to the business and taxable at the lump sum or “extra pay” rate as part of the employees wages. These payments could include annual or special bonuses; cashed in annual leave; retiring or redundancy payments or back pay. Your payroll software should be able to calculate a lump sum payment tax deduction or alternatively the IRD website shows how this calculation should be done. Remember that KiwiSaver is also payable on bonus payments.